Overlooked Automotive Tier Suppliers Step Up to Table to Ask for Their Slice of the Bailout Pie

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Researched by Industrial Info Resources (Sugar Land, Texas)--In recent months the majority of the focus within the automotive sector has been on the trials and tribulations of the Detroit Three: General Motors Corporation (NYSE:GM) (Detroit, Michigan), Ford Motor Company (NYSE:F) (Dearborn, Michigan) and Chrysler LLC (Auburn Hills, Michigan). However, the Detroit Three, as well as foreign automakers, would be unable to operate -- even at the reduced levels they are operating in today -- without the intricate and often confusing network of tier suppliers that do the actual manufacturing of parts for the automotive sector. Now these tier suppliers are standing up and demanding that the delicate financial situation with which they are currently dealing be given some consideration by the government.

Even as GM and Chrysler were submitting their detailed viability plans to Congress, the tier suppliers, in the form of the Motor & Equipment Manufacturers Association and its affiliate the Original Equipment Suppliers Association have asked the Treasury Department for $25.5 billion in emergency bailout aid. The groups together represent more than 400 companies that manufacture the actual parts that automakers need to assemble vehicles and can boast annual global sales figures that exceed $300 billion.

With approximately 40 major suppliers filing for bankruptcy protection in 2008, this sector is crying to be heard. Over 1 million jobs are potentially at stake if the tier suppliers cannot get some kind of financial assistance from the government in the coming weeks. Temporary relief is the battle cry for these unsung entities in the automotive sector. Their request is a simple one: Provide us with some kind of financial relief in the near future or you could potentially see enough suppliers file for bankruptcy that it will not matter how much money you toss at the Detroit Three -- there will be almost no one left to make the parts for them.

The request comes in the form of three financial segments. First, provide $10.5 billion in governmental guarantees of supplier receivables from GM, Ford and Chrysler that will enable suppliers to use their receivables as loan collateral with more traditional lenders. Second, provide $8 billion in governmental guarantees of commercial loans for supplier companies and third, use $7 billion to create a "quick pay" receivables program that would increase supplier liquidity by accelerating accounts-payable payments from GM and Chrysler to their suppliers.

This request of financial aid is not an unjustified one. With the number of tier suppliers forced into bankruptcy in recent months coupled with the well publicized struggles of the Detroit Three, the tier suppliers are deeply concerned that they are potentially facing a total collapse of the support system that the automotive sector relies on for parts. The Detroit Three ceased actual production of the parts they use to assemble vehicles decades ago and now survive off of an intricate web of supplier relationships. If this web dissolves it would decimate a sector that is already on the brink of total collapse.

As odious as it has been in recent months to watch the Detroit Three beg for money to remain operational after decades of driving themselves into the ground, the money requested by the tier suppliers makes much more sense. They have been teetering on the brink, in large part, thanks to that same mismanagement and poor marketing by the Detroit Three -- problems that they are not in a position to fix themselves as they have had to rely on the automakers to purchased their products. If the Detroit Three go down, so does the supplier network, at least a major portion of it, since there would not be enough work to go around without the Detroit Three. The reverse can also be said but potentially on a much larger scale. If the supplier network collapses, that affects not only the Detroit Three but also the foreign automakers that rely on the same network of companies for parts supplied to their plants in North America.

Unfortunately for Congress, the money it has given and will continue to give to the ailing Detroit Three is only a drop in the bucket of what is going to have to be doled out if it wants the American automotive sector to survive. However, any money spent on the supplier network is probably a better investment than what will be spent in Detroit.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.